Tesla stock took a hit following disappointing earnings and less-than-optimistic comments from CEO Elon Musk. The report left Wall Street feeling apprehensive about the company’s prospects.
Weak Earnings Results
Tesla (ticker: TSLA) posted adjusted earnings per share of 66 cents, falling short of analysts’ estimated profit of 70 cents. Automotive gross profit margins, excluding regulatory credit sales, stood at 16.3%, below the expected 17.5%. Furthermore, operating profit margins experienced a significant downturn, dropping nearly 10 percentage points year over year to 7.6%.
Profitability Suffers Due to Price Cuts
One of the main reasons behind the decline in profitability was attributed to price cuts. As the economy becomes more challenging, selling cars has become increasingly difficult, as emphasized by Musk during the earnings conference call. He expressed concern about the high interest rate environment, stating, “The vast majority of people buying a car is about the monthly payment.”
In premarket trading, Tesla stock tumbled 7.2% to $225.13 per share. Meanwhile, S&P 500 futures remained flat, and Nasdaq Composite futures witnessed a slight increase of 0.1%.
Analysts Bearish on Tesla
Following the release of the earnings report, analysts were not optimistic about Tesla’s future prospects either.
In a research report, Wells Fargo analyst Colin Langan removed his rose-colored glasses, expressing uncertainty surrounding volume growth and continued profit margin pressures. He highlighted that not only was the ramp-up of the Cybertruck limited, but Tesla was also awaiting macro-economic improvement before fully committing to its Mexico plant construction.
Langan reduced his price target for Tesla shares from $260 to $250 per share while maintaining a Hold rating on the stock. Similarly, Citi analyst Itay Michaeli also rated the shares as Hold, adjusting his price target from $271 to $255.
A Somewhat Worse Outcome for Tesla: Analyst Reactions
By Al Root
Tesla recently reported its quarterly earnings, and analysts have reacted with mixed reviews. While some see cause for concern, others remain optimistic about the company’s future.
A Cautionary Tone
In a report, Michaeli characterized the quarter as “somewhat worse” than expected, noting a more cautious tone during the conference call. As a result, he advises staying on the sidelines until there are more positive developments.
Analyst Dan Ives was even more critical, calling the call a “mini-disaster.” He highlights the market’s desire to understand global price cuts and falling margins, but instead heard a more cautious Elon Musk.
Mixed Ratings and Targets
Ives maintains a Buy rating for Tesla’s shares but lowers his target price from $350 to $310. On the other hand, RBC analyst Tom Narayan still rates the shares as a Buy, albeit with a reduced target price of $301 from $305.
Narayan holds an interesting perspective on the quarter, believing that investors might be missing a crucial point. He suggests that Tesla could potentially transition from a volume car maker to become a Tier 1 supplier for other automakers. This transformation would involve providing power electronics, batteries, charging solutions, and driver assistance software. However, he acknowledges that for now, investors remain focused on Tesla’s car business.
Currently, approximately 40% of analysts covering Tesla rate the shares as Buy. This figure is slightly lower than the average Buy-rating ratio for stocks in the S&P 500, which stands at around 55%. Furthermore, the average analyst price target for Tesla sits at $246 per share, around $14 lower than before the earnings report.
It remains to be seen how Tesla will navigate the challenges it faces and whether it will successfully shift its focus from car manufacturing to becoming a major supplier in the industry. For now, analysts have differing opinions, leaving investors uncertain about the path ahead.